Pound to keep falling, holidaymakers warned

Britons going to Europe and US suffer as pound drops to two-and-a-half-year
low.

Holidaymakers have been warned that recent falls in the pound might worsen before summer.

Sterling dropped to a two-and-a-half-year low against the dollar this week – meaning you will get $50 less when exchanging £500 than you would have over Christmas.

It is not just the United States which will be more expensive for travellers this year. Families heading to the eurozone are getting the worst rate since October 2011. The pound has sunk more than 11pc since last summer's four-year high, meaning holidaymakers will be €70 worse off for every £500 exchanged.

The pound has lost 7pc against the dollar so far this year, but some predict it could lose as much as 20pc of its value in 2013.

Sterling also slumped to a 15-month low against the euro, following the release of the Bank of England minutes.

"The release of the Bank of England minutes today provided further evidence to suggest Britain could be facing a triple-dip recession. The impact this has had on the pound comes as yet another blow to British holidaymakers," said David Swann of Travelex.

The Bank of England minutes revealed that several policymakers, including governor Sir Mervyn King, voted for another round of quantitative easing. Three board members voted to increase QE by £25bn to £400bn. The Bank also raised its forecasts for inflation, predicting it would hit 3pc. Under normal conditions, the Bank would be expected to consider raising interest rates to offset such a rise, but British savers are expecting no such respite.

It is not all bad news, however. According to Travelex, those willing to look at alternative destinations could be getting more for their holiday pounds.

Japan, South Africa and Brazil are all hot destinations currently providing great value for money. Sterling is up 15pc against the Japanese yen compared with this time last year, 13pc up against the South African rand over the past 12 months and 11pc up on the Brazilian real.

Fellow foreign exchange specialists HiFX also advised people to take a careful look at a variety of holiday destinations to reduce the costs of their foreign holiday.

Those looking to book a last-minute ski holiday should consider Kolasin in Montenegro, as it is the cheapest of eight ski destinations across Europe and North America, including Aspen, Whistler, Courchevel, Sierra Nevada and Zermatt.

According to research by HiFX, a family of four would need £430 to cover ski passes, group ski lessons and equipment – £1,000 less than if they went to Norway.

Mark Bodega of HiFX commented: "Despite all the positive rhetoric from David Cameron regarding the UK being open for business, the short to medium-term outlook for the pound remains decidedly bleak. While music to the ears of UK exporters, it's a major headache for the vast majority of Brits looking to go on holiday overseas."

Holidaymakers may not be able to control currency fluctuations, but there are certain steps they can take to keep travel costs down.

Exchanging currency at the airport can cost up to 6pc more – it is much cheaper to pre-order your holiday cash either online or through a bureau de change. Holidaymakers should also beware hidden charges such as costs to withdraw cash from foreign ATMs and dynamic exchange rate fees.

Analysts blame the sterling's fall on the juxtaposition of a poor outlook for the UK economy against positive forecasts across the pond.

"The pound has suffered fresh losses versus the US dollar on suggestions the US Federal Reserve could opt to wind down monetary stimulus before any substantial improvement in the outlook for the US labour market occurs," said Chris Saint, currency analyst at Hargreaves Lansdown.

"Against an uncertain economic growth backdrop, more policymakers could be willing to overlook stubbornly high UK inflation in the coming months, putting further downward pressure on the pound as more QE becomes a realistic prospect."